Russian President Vladimir Putin listens to Minister of Construction, Housing and Utilities Vladimir Yakushev during a meeting in Moscow on February 10, 2020.
Aleksey Nikolskyi | Sputnik | Kremlin via Reuters
There are signs that the Russian economy is overheating, with an annual inflation rate of currently 5.9%, said the country’s finance minister Anton Siluanov on Thursday.
“If we continue with increased spending, what will we get? Overheating. Elements of overheating are already visible – high inflation, ”said Siluanov, according to a Reuters translation at the International Economic Forum in St. Petersburg.
Consumer price inflation accelerated again in May, rising from 5.5% in April. Earlier this week, Russia’s central bank governor Elvira Nabiullina told CNBC that “inflation is accelerating” and that, unlike other countries, inflation was not seen as a temporary problem as economies reopened and consumer demand rose.
“It’s different in our case,” Nabiullina told CNBC’s Hadley Gamble earlier this week to SPIEF. “We think that inflationary pressures in Russia are not temporary, not temporary. We are seeing more permanent factors, monetary factors, so we have started to bring a rate hike back to a neutral stance.”
Investors will look to the next central bank meeting on June 11 to see what it does next. There is mounting speculation that the bank could raise rates by up to 50 basis points from the current 5%. The central bank’s inflation target is 4%.
Nabiullina said the central bank will analyze all factors, including the inflation forecast and economic climate, but said that “we see the risk that our inflation expectations will be raised and they will remain elevated for several months.”
On Wednesday, Russia’s central bank released a bulletin stating that the economy will continue to grow in the second quarter and that gross domestic product could reach pre-pandemic levels in mid-2021.
However, analysts at the bank noted that “economic growth is still uneven. The export and wholesale industries as well as the service sector have recovered at an above-average rate in recent months.”
The uncertainty about the medium and long-term consequences of the coronavirus pandemic is still high.
Russia’s economy has been under international sanctions since 2014 after the annexation of Crimea.
Its role in a pro-Russian uprising in eastern Ukraine, the 2016 US election interference, neurotoxin poisoning in the UK and its role in the SolarWinds cyberattack have all resulted in further sanctions. Russia, for its part, denies any involvement or wrongdoing.
The Russian economy contracted about 3% in 2020 with the outbreak of the pandemic, marking its worst decline in 11 years. This was due to public health measures in response to the Covid crisis and a decline in energy demand (Russia is one of the largest oil exporters in the world).
Russia’s central bank now expects GDP growth to be between 3-4% for 2021, but Nabiullina said, “a lot depends on the situation, of course …
The country’s central bank governor told CNBC that the US sanctions were a “permanent risk” for the country. However, she also said Moscow’s reserves are “quite large to withstand any financial or geopolitical scenario” and are likely to be more diverse than any other country’s reserves.